We Like These Underlying Return On Capital Trends At Labo Print (WSE:LAB)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Labo Print's (WSE:LAB) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Labo Print:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.14 = zł7.5m ÷ (zł87m - zł32m) (Based on the trailing twelve months to September 2021).

Thus, Labo Print has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 17% generated by the Commercial Services industry.

See our latest analysis for Labo Print

Historical performance is a great place to start when researching a stock so above you can see the gauge for Labo Print's ROCE against it's prior returns. If you're interested in investigating Labo Print's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We like the trends that we're seeing from Labo Print. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 196% more capital is being employed now too. So we're very much inspired by what we're seeing at Labo Print thanks to its ability to profitably reinvest capital.

The Bottom Line On Labo Print's ROCE

In summary, it's great to see that Labo Print can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 41% return over the last five years. In light of that, we think it's worth looking further into this stock because if Labo Print can keep these trends up, it could have a bright future ahead.

If you want to continue researching Labo Print, you might be interested to know about the 3 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.